Coinbase Faces Class Action Over SEC Lawsuit

By Jonathan Stempel

A federal judge has rejected Coinbase’s bid to dismiss a class action lawsuit by shareholders who accuse the company of downplaying the risk of an SEC lawsuit.

U.S. District Judge Brian Martinotti issued the ruling in Newark, New Jersey, more than a year after the SEC’s lawsuit on June 6, 2023, alleged that Coinbase was operating an unregistered securities exchange. On that day, Coinbase’s share price dropped by 12%.

Martinotti stated that shareholders provided sufficient evidence that Coinbase and its executives misled them by portraying a misleadingly positive view of the SEC’s enforcement actions regarding the classification of crypto assets as securities.

In a comprehensive 50-page decision, Martinotti also allowed shareholders to pursue claims that Coinbase misrepresented the risk of losing customer assets in the event of bankruptcy proceedings.

On May 11, 2022, Coinbase’s share price fell over 26% following new disclosures and reports of a notable revenue decline.

While the judge dismissed claims about Coinbase denying its involvement in proprietary trading, executives, including CEO Brian Armstrong, still face litigation.

Coinbase expressed confidence in its position regarding the facts and law, stating readiness to defend its case.

The case has attracted significant attention, led by the Swedish pension fund Sjunde AP-Fonden, covering shareholders between April 14, 2021, and June 5, 2023. The litigation is formally termed ‘In re Coinbase Global Inc Securities Litigation’ and is filed in the U.S. District Court, District of New Jersey, under case number 22-04915.

Additionally, a federal judge in Manhattan previously denied Coinbase’s attempt to dismiss the SEC lawsuit in March.